Financial regulation

Financial regulation is a broad set of policies that apply to the financial sector in most jurisdictions, justified by two main features of finance: systemic risk, which implies that the failure of financial firms involves public interest considerations; and information asymmetry, which justifies curbs on freedom of contract in selected areas of financial services, particularly those that involve retail clients and/or Principal–agent problems. An integral part of financial regulation is the supervision of designated financial firms and markets by specialized authorities such as securities commissions and bank supervisors.

In some jurisdictions, certain aspects of financial supervision are delegated to self-regulatory organizations. Financial regulation forms one of three legal categories which constitutes the content of financial law, the other two being market practices and case law.^[1]

History

In the early modern period, the Dutch were the pioneers in financial regulation.^[2] The first recorded ban (regulation) on short selling was enacted by the Dutch authorities as early as 1610.

Aims of regulation

The objectives of financial regulators are usually:^[3]

market confidence – to maintain confidence in the financial system
financial stability – contributing to the protection and enhancement of stability of the financial system
consumer protection – securing the appropriate degree of protection for consumers.
reduce financial crime
regulate foreign participation

Structure of supervision

Acts empower organizations, government or non-government, to monitor activities and enforce actions.^[4] There are various setups and combinations in place for the financial regulatory structure around the globe.^[5]^[6]

Securities market regulation

Exchange acts ensure that trading on the floor of exchanges is conducted in a proper manner. Most prominent the pricing process, execution and settlement of trades, direct and efficient trade monitoring.^[7]^[8]

Financial regulators ensure that listed companies and market participants comply with various regulations under the trading acts. The trading acts demands that listed companies publish regular financial reports, ad hoc notifications or directors' dealings. Whereas market participants are required to publish major shareholder notifications. The objective of monitoring compliance by listed companies with their disclosure requirements is to ensure that investors have access to essential and adequate information for making an informed assessment of listed companies and their securities.^[9]^[10]^[11]

Asset management supervision or investment acts ensures the frictionless operation of those vehicles.^[12]

Supervision of banks and financial services providers

Banking acts lay down rules for banks which they have to observe when they are being established and when they are carrying on their business. These rules are designed to prevent unwelcome developments that might disrupt the smooth functioning of the banking system. Thus ensuring a strong and efficient banking system.^[13]^[14]

Financial regulatory authorities

References

^ Joanna Benjamin 'Financial Law' Oxford University Press
^ Clement, Piet; James, Harold; Van der Wee, Herman (eds.): Financial Innovation, Regulation and Crises in History. (Routledge, 2014. xiii + 176 pp. ISBN 9781848935044)
^ UK FSA statutory objectives, 2016-04-20, archived from the original on 2017-07-07, retrieved 2012-08-21
^ De Caria, Riccardo (2011-09-23), What is Financial Regulation Trying to Achieve?, Riccardo De Caria, SSRN 1994472
^ Luxembourg CSSF structure and organisation
^ German BAFin supervision organisation, archived from the original on 2012-08-04
^ Suisse finma stock exchange supervision
^ German BAFin stock exchange supervision, archived from the original on 2012-07-22
^ Finland FSA supervion of listed companies, archived from the original on 2012-10-12, retrieved 2012-08-05
^ Saudi Arabia market supervision, archived from the original on 2013-05-18, retrieved 2012-08-05
^ Borsa Italiana listed stock supervision^{[permanent dead link]}
^ US SEC Division of Investment Management
^ Reserve Bank of India, Department of Banking Supervision
^ Luxembourg CSSF Supervision of Banks, archived from the original on 2016-03-05, retrieved 2012-08-05

External links

[1] Joanna Benjamin 'Financial Law' Oxford University Press

[2] Clement, Piet; James, Harold; Van der Wee, Herman (eds.): Financial Innovation, Regulation and Crises in History. (Routledge, 2014. xiii + 176 pp. ISBN 9781848935044)

[3] UK FSA statutory objectives, 2016-04-20, archived from the original on 2017-07-07, retrieved 2012-08-21

[4] De Caria, Riccardo (2011-09-23), What is Financial Regulation Trying to Achieve?, Riccardo De Caria, SSRN 1994472

[5] Luxembourg CSSF structure and organisation

[6] German BAFin supervision organisation, archived from the original on 2012-08-04

[7] Suisse finma stock exchange supervision

[8] German BAFin stock exchange supervision, archived from the original on 2012-07-22

[9] Finland FSA supervion of listed companies, archived from the original on 2012-10-12, retrieved 2012-08-05

[10] Saudi Arabia market supervision, archived from the original on 2013-05-18, retrieved 2012-08-05

[11] Borsa Italiana listed stock supervision^{[permanent dead link]}

[12] US SEC Division of Investment Management

[13] Reserve Bank of India, Department of Banking Supervision

[14] Luxembourg CSSF Supervision of Banks, archived from the original on 2016-03-05, retrieved 2012-08-05

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v t e Financial markets
Types of markets	Primary market Secondary market Third market Fourth market
Types of stocks	Common stock Golden share Preferred stock Restricted stock Tracking stock
Share capital	Authorised capital Issued shares Shares outstanding Treasury stock
Participants	Broker Floor broker Inter-dealer broker Broker-dealer Market maker Trader Floor trader Proprietary trader Quantitative analyst Investor Hedger Speculator Arbitrager Scalper Regulator
Trading venues	Exchange List of stock exchanges Trading hours Over-the-counter (off-exchange) Alternative Trading System (ATS) Multilateral trading facility (MTF) Electronic communication network (ECN) Direct market access (DMA) Straight-through processing (STP) Dark pool (private exchange) Crossing network Liquidity aggregator
Stock valuation	Alpha Arbitrage pricing theory (APT) Beta Buffett indicator (Cap-to-GDP) Book value (BV) Capital asset pricing model (CAPM) Capital market line (CML) Dividend discount model (DDM) Dividend yield Earnings yield EV/EBITDA Fed model Net asset value (NAV) Security characteristic line Security market line (SML) T-model
Trading theories and strategies	Algorithmic trading Buy and hold Contrarian investing Dollar cost averaging Efficient-market hypothesis (EMH) Fundamental analysis Growth stock Market timing Modern portfolio theory (MPT) Momentum investing Mosaic theory Pairs trade Post-modern portfolio theory (PMPT) Random walk hypothesis (RMH) Sector rotation Style investing Swing trading Technical analysis Trend following Value averaging Value investing
Related terms	Bid–ask spread Block trade Cross listing Dividend Dual-listed company DuPont analysis Efficient frontier Financial law Flight-to-quality Government bond Greenspan put Haircut Initial public offering (IPO) Long Mandatory offer Margin Market anomaly Market capitalization Market depth Market manipulation Market trend Mean reversion Momentum Open outcry Order book Position Public float Public offering Rally Returns-based style analysis Reverse stock split Share repurchase Short selling Short squeeze Slippage Speculation Squeeze-out Stock dilution Stock exchange Stock market index Stock split Stock swap Trade Tender offer Uptick rule Volatility Voting interest Yield